Is the assumption of constant factor loadings too strong in practice?

Autor:	Luke Hartigan, Nektarios Aslanidis
Rok vydání:	2021
Předmět:	Constant factor Economics and Econometrics 050208 finance 0502 economics and business 05 social sciences Econometrics Economics Sample (statistics) 050207 economics Constant (mathematics) Factor analysis
Zdroj:	Economic Modelling. 98:100-108
ISSN:	0264-9993
DOI:	10.1016/j.econmod.2021.02.015
Popis:	The assumption of constant loadings when estimating factor models is implicit in all empirical applications used in macroeconomics. We test this assumption explicitly in a general smooth transition loadings setting using a well-studied macroeconomic dataset on the U.S. economy. Our proposed testing approach has reasonable finite sample properties relative to alternatives that allow for an abrupt change in the factor loadings. In an empirical application, we find evidence in support of non-constancy in factor loadings and show that it is mainly concentrated in certain sections of the economy (such as financial variables). Overall, our findings provide additional support toward developing factor models, which explicitly account for non-constant factor loadings.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::0c437814fe8b23446137e415a07094bf https://doi.org/10.1016/j.econmod.2021.02.015 Zobrazit plný text záznamu Full Text from ScienceDirect